By Carey Wong
Fri, 21 May 2010, 09:26:14 SGT

Market Pulse: Singapore REIT and Oceanus (21 May 2010)

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Industrial REITs: On stronger footing

Summary: The industrial REIT sub-sector is in much a stronger position, in our view, compared to a year ago. The sub-sector is on average geared at 33.5% debt-to-assets versus the broader S-REIT average of 30.6%. Some REITs are still de-leveraging through asset divestments. The managers for the most part presented a cautiously optimistic outlook going forward – both in terms of a bottoming out of asset values and of rents. The REITs have big growth plans including via 1) acquisitions; 2) asset enhancements; and 3) development projects. There is significant divergence in valuations within the sub-sector: from premiums of 22% to book value to discounts of 32%. We think this is partially because of continued investor caution towards smaller industrial REITs. Nevertheless, if the second-tier industrial REITs can present two to three quarters of sustained earnings performance and deliver on their strategic plans, we could see the valuation gap narrow. We have a NEUTRAL rating on the broader S-REIT sector. (Meenal Kumar)


Oceanus Group Ltd: Reassessing the Ah Yat Tian Xia blueprint

Summary: Oceanus Group (Oceanus) hosted its 1Q10 results briefing yesterday. The group turned in a 63.8% YoY growth in sales to RMB106.5m, driven by its restaurant expansion which now boasts 20 outlets as compared to just one in 1Q09. Net profit, however, fell 9.7% YoY to RMB97.4m due to high operating expenses associated with its ongoing expansion as well as high finance costs. Although its restaurant expansion helped to boost F&B sales to RMB18.0m from just RMB1.0m a year ago, this segment incurred a RMB9.6m net loss in 1Q10 due to high rental and operating costs. As such, management will spend FY10 pruning unprofitable units and revamping Ah Yat Tian Xia’s positioning in an attempt to revive the business. It will also resume its tank expansion plan in FY10 to cater to a growing abalone population, which we anticipate should boost sales and biological asset valuations from FY11 onwards. We maintain our HOLD rating on Oceanus with an unchanged S$0.365 fair value estimate. (Lee Wen Ching)


For more information on the above, visit www.ocbcresearch.com for the detailed report.


NEWS HEADLINES

- IE Singapore now expects total trade to grow 14-16% this year (previous forecast: 9-11%) and non-oil domestic exports to grow 15-17% (prev: 10-12%).

- Sembcorp Industries said Cascal's request for the injunction against the launch of the tender offer was denied by a United States district court.

- Tiger Airways Singapore has been awarded S$4.7m in damages resulting from its breach of contract claim against Swissport Singapore Pte Ltd.

- MCL Land beat six other developers with its S$207.5m top bid for a 99-year leasehold residential site at Hougang Avenue 2.

- Cortina Holdings posted FY10 net profit of S$12.3m, up 94.3%, due to firmer sales and the absence of a one-off inventory loss recorded a year ago.

- Property consultant DTZ said 8,159 private residences were sold in 1Q10, up 22% QoQ and more than double the number a year ago.

- An insurance consultancy has refuted a key claim made by Prudential, which has launched its US$21b rights issue to fund the US$35.5b acquisition of AIA.

- Private equity property group MGPA have reportedly sold its stake in the 162 apartments it bought at The Cascadia in 2007 to a fund managed by Keppel Land's Alpha Investment Partners.

- The MasterCard Worldwide Index of Consumer Confidence survey saw consumer sentiment in Singapore rise to a score of 86.6, coming close to pre-crisis level of 87.3 as seen in 1H08.

- The index of US leading economic indicators unexpectedly declined in April, a sign that economic expansion may slow in 2H10.